Gentry v. Credit Plan Corp. of Houston

• Decision Date: 24 September 1975
• Docket Number: No. B--4999,B--4999
• Citation: 528 S.W.2d 571
• Parties: John B. GENTRY, Sr., et ux., Petitioners, v. CREDIT PLAN CORPORATION OF HOUSTON et al., Respondents.
• Court: Texas Supreme Court

Page 571

528 S.W.2d 571

John B. GENTRY, Sr., et ux., Petitioners, v. CREDIT PLAN CORPORATION OF HOUSTON et al., Respondents.

No. B--4999.

Supreme Court of Texas.

Sept. 24, 1975.

Rehearing Denied Nov. 5, 1975.

Momberger & Momberger, Edwin H. Momberger, and Marie W. Momberger, Houston, for petitioners.

Bernard & Bernard, D. R. Bernard, Houston, for respondents.

WALKER, Justice.

This is an unreasonable collection efforts case. The events giving rise to the suit occurred on or about February 7, 1969. Shortly thereafter John B. Gentry and wife, Eileen Gentry, plaintiffs, filed suit against Joe Assad and Credit Plan Corporation of Houston. Colonial Finance Corporation was joined as a defendant on May 17, 1972, more than two years after the alleged cause of action accrued, and Kelcor Corporation was joined as a defendant about eight months later. Colonial was merged into Kelcor during the pendency of the suit, and it is undisputed that Kelcor assumed all of Colonial's liabilities. The questions to be decided are: (1) whether Credit Plan was the alter ego of Colonial; and (2) if so, whether the suit against Credit Plan stopped the running of the statute of limitations in favor of Colonial.

The trial court rendered judgment on the verdict and on the basis of its conclusion that Credit Plan was, as a matter of law, the alter ego of Colonial and Kelcor. ¹ Plaintiffs were given judgment against Credit Plan, Colonial, Kelcor and Assad, jointly and severally, for actual damages of $69,747.35 and exemplary damages in the amount of $69,447.35. The Court of Civil Appeals concluded that the suit against Colonial and Kelcor is barred by limitation. It reversed the judgment of the trial court as to those defendants and rendered judgment that plaintiffs take nothing against Colonial and Kelcor. The judgment of the trial court against Assad and Credit Plan was affirmed. 516 S.W.2d 471. John B. Gentry died after oral argument here. A suggestion of death has been filed, and the case will proceed to judgment as provided in Rule 369a, T.R.C.P. We reverse the judgment of the Court of Civil Appeals and affirm that of the trial court.

By their Point No. 73 in the Court of Civil Appeals, Colonial and Kelcor contended that there is no evidence to warrant the conclusion that Credit Plan was the alter ego of Colonial. The Court of Civil Appeals did not reach that question, but under our view of the case it is necessary for us to do so. We consider it first.

A subsidiary corporation will not be regarded as the alter ego of its parent merely because of stock ownership, a duplication of some or all of the directors or officers, or an exercise of the control that stock ownership gives to stockholders. On the other hand where management and operations are assimilated to the extent that the subsidiary is simply a name or conduit through which the parent conducts its business, the corporate fiction may be disregarded to prevent fraud or injustice. Unlike a suit for breach of contract, the plaintiff in a tort case does not have the burden of justifying a recovery against the parent when he willingly contracted with the subsidiary. The problem in such a case is essentially one of allocating the loss. It is not necessary to establish fraud, and the financial strength or weakness of the subsidiary is an important consideration. See Bell Oil & Gas Co. v. Allied Chemical Corp., Tex.Sup., 431 S.W.2d 336; First Nat. Bank v. Gamble, 134 Tex. 112, 132 S.W.2d 100; 18 Am.Jur.2d, Corporations § 17; Douglas and Shanks, Insulation from Liability Through Subsidiary Corporations, 39 Yale L.J. 193; Ballentine, Separate Entity of Parent and Subsidiary Corporations, 14 Calif.L.Rev. 12.

Colonial caused its President, Secretary, and Treasurer to incorporate Credit Plan in 1963. The capital stock consists of 25,000 shares of the par value of $1.00 per share. Colonial became the owner of 22,500 shares, and the remaining 2,500 shares were registered in the name of the person who was manager at the time of Credit Plan's office in Houston. The manager executed a note for $2,500.00 to Colonial, and Colonial reserved the right, which was printed on the stock certificate, to repurchase the stock when the owner resigned or retired as manager. Upon termination of the manager's employment, the stock certificate and note were cancelled and the stock was registered in the name of the new manager, who executed his note for $2,500.00 to Colonial. This occurred several times, and none of the notes was ever paid. The manager never attended a stockholders' meeting, and it is not clear from the record that a meeting of the stockholders was ever held.

Colonial owned a number of other subsidiaries, including Credit Plan, Family Plan Corporation, Mutual Plan Corporation, Kelly Acceptance Corporation, and at least two others that remain unnamed here to avoid confusion. The same persons were officers and directors of Colonial and Credit Plan. Kelly Acceptance is a management corporation that was organized in 1963. All of its stock was owned by Colonial, and Kelly Acceptance performed management functions for all of the Colonial subsidiaries. Kelly Acceptance maintained the books, records and accounts of Colonial and Credit Plan.

Colonial and its subsidiaries maintained the same corporate office and had the same registered agent. The directors of Colonial and Credit Plan met at the same time and place. Colonial and Credit Plan were engaged in the same business, their charters containing the same or similar purpose clauses. Their business consisted of making loans on the security of automobiles, furniture and other personal property, and their only income was from insurance premiums and interest on loans. A single loan office was operated in the name of Credit Plan, and another office was operated in the name of each of the other subsidiaries except Kelly Acceptance. In most instances the offices were in different cities. Managers of the several offices were interviewed, evaluated and selected by C. K Wingo, who was President of Colonial and of each subsidiary. From time to time managers were transferred from one loan office to another, and in at least one instance two of the loan offices were combined. President Wingo received no salary or reimbursement of expenses from Credit Plan.

Money with which to do business was borrowed at different times from banks and was also obtained by the sale of Colonial's debentures. More recently the money was obtained from Walter E. Heller & Co. of Chicago. The loan papers of the several subsidiaries were discounted with Heller. Colonial and all subsidiaries guaranteed payment of all notes transferred to Heller. Money obtained from the sale of loans by Colonial and its subsidiaries to Heller was sent to Kelly Acceptance, which then apparently made advances to Credit Plan and other subsidiaries as required. Kelly Acceptance maintained a ledger showing 'Amounts due from Credit Plan Cor. of Houston.' This ledger contained three columns,...